Buy-to-let news to Friday, November 24th, 2017

New buy-to-let investor yield survey highlights double-digit returns in the north; Thousands of landlords in Wales fail to register for compulsory scheme;

North of England tops UK rental yield survey

Liverpool’s appeal as an area for buy-to-let investment has received a great boost, as new analysis of yield by postcode area revealed that the city held the top three positions.

Research by TotallyMoney, indicated that landlords in the north of England are still able to achieve double-digit yields, with the L7 district of Liverpool topping the lot with an average yield of 12.63%, closely followed by L6 (10.57%) and L15 (10.29%).

The TS1 region of Middlesbrough (10.06%) and central Preston (10.04%), in the north-west also sat within the double-digit threshold.

Parts of Nottingham, Manchester, Leeds, Sheffield, Newcastle Sunderland and Glasgow also featured within the top 25 areas by yield. However, Plymouth’s PL4 district, at 10.15%, was the only southern location to appear on the list, although it does sit in fourth from top place.

London figured prominently in the top 25 “cold spots” in the UK for buy-to-let yields, filling five of the top six yields, with NW7, at 2.31%, offering the lowest yield.

The research looked at data from in excess of 500,000 properties, which had been marketed for sale online in October 2017 across over 2,700 postcodes.

Joe Gardiner, at TotallyMoney, commented:

“Realising a decent return on a buy-to-let rental property is becoming increasingly difficult.

"Property prices continue to rise steadily, albeit more slowly, and rule changes have made lenders more cautious.

“Prospective landlords need to go into property investment armed with the facts: they need to be on top of their credit report, compare the market for the best buy-to-let mortgage rates and focus on property investment in areas that can give them the highest yield.

Welsh landlords warned to register for Rent Smart Wales

A scheme aimed at improving standards within Wales’s private rental sector, has not yet received the universal co-operation of landlords, who run the risk of fixed penalty fines, renting stopping orders and having licences revoked, it has been revealed.

The Welsh Government initiated Rent Smart Wales (RSW) in November 2015, in a bid to list all privately rental homes and landlords on a central public register.

The legislation gave landlords up to a year to register and comply, with registration becoming compulsory for all landlords and property managers with property in Wales, a year ago.

However, recently released data for October 2017, shows that whilst 107,533 user accounts were created, just 85,265 landlords had registered, with only 16,716 licensed.

Emily Samuel from SerenLiving, stated:

“It is possible that the scale of the rental sector in Wales was not fully appreciated before the scheme was introduced; there are no exact figures for the number of landlords in Wales, for example, with estimates ranging from between 100,000 to 130,000.

“There are also a large number of landlords living elsewhere in the UK with properties in Wales who must register their properties but are possibly unaware of the legislation.

“Rent Smart Wales has warned that it will take action to make landlords comply, including issuing fixed penalty notices of up to £250 and taking forward prosecutions where necessary.”

Younger tenants looking to deal directly with landlords

An increasing number of younger tenants are looking to cut out the middle man agent, preferring to do business directly with landlords, new research has shown.

According to The House Shop, tenants are in growing numbers opting to use the landlord messaging function on their website, rather than searching letting agent listings.

The data also revealed that 31.2% of tenants look for a new rental home at the last minute, with the aim of moving in within a fortnight of their initial enquiry on a listing.

According to Nick Marr, founder of The House Shop, tenants may be going direct in an attempt to avoid letting agent fees.

He said: “When a tenant makes an enquiry about a property online, it can often take two to three days before they receive a reply – especially if the property is being advertised directly by a DIY landlord who will usually have a full-time job to worry about, as well as their buy-to-let business.

“Even if the landlord replies to the enquiry instantly, the landlord and tenant will need to arrange a time for viewing that suits both parties, conduct tenant referencing checks, sign contracts, manage deposits, etc, before the new tenants can actually move in.”

“The cost of renting has become increasingly expensive, so it is not surprising to learn that a growing number of tenants are looking to reduce their costs by going direct to landlords.

“Many landlords do not want the hassle of managing tenancies as they have careers or simply wish to remain out of the picture.

“It will be interesting to see if this trend continues once the proposed letting agent fees ban becomes law.

“It is widely anticipated that once the ban on fees to tenants is imposed, this loss of revenue for letting agents will simply be diverted to landlords.

“Landlords may then opt to avoid using lettings agents as a cost saving, however, they may pass the additional cost on in rent to the tenant, which negates the impact of withdrawing letting agent fees to tenants in the first place.

“Whilst tenants may want to communicate directly with their landlord, landlords may not be in a position to reciprocate, finding the right balance may need to be addressed in the future.”

Broker buy-to-let deals confound forecasts

Broker-managed buy-to-let mortgage sales leapt by 12.6 per cent between September and October, defying gloomy forecasts and underlining the enduring faith that investors have in bricks and mortar.

Data from Equifax Touchstone, showed that the overall total of intermediated buy-to-let lending was £358.3 million, as overall mortgage sales expanded by 7.3 per cent to £1.1 billion.

This positive news comes not long after Savills had predicted a dramatic fall in the number of buy-to-let investors over the coming five years.

“The stamp duty surcharge, reduction in mortgage interest tax relief and the Prudential Regulatory Authority’s stricter rules on lending criteria, amongst other things, have created additional layers of complexity to buy to let investment. I am not surprised that landlord investors are shrewdly seeking help via specialist brokers, rather than going it alone.

“Similarly, ahead of the Bank of England’s base rate rise, there was much speculation and a number of lenders began to raise mortgage rates. This too may have served as a catalyst for a number of investors to contact brokers and search for a better rate.

“I urge any landlord feeling reticent about buy to let to pursue the expertise of a specialist. As these figures demonstrate, there may be options available to retain a position of profitability that is not easy to identify without appropriate guidance.

“As the buy-to-let market continues to evolve, I would expect more investors to seek specialist help from buy-to-let broker firms like Commercial Trust Limited.”

Number of people renting falls 7%

The number of people living in rented accommodation fell 7% over the six months between April and October, according to new data.

According to the research, carried out by Usurv, on behalf of Cover4LetProperty, 31% of adults lived in private or social rented property last month, representing a 7% reduction since April 2017.The report also highlighted that 29% of those renting had seen a 5% increase the last time their rent was amended, while 11% experienced a rental increase of between 6% and 10%.

This suggests that some landlords are now passing on added costs, such as the reduction in mortgage interest tax relief and stamp duty, to tenants.

However, this is far from universal, with 28% of private renters indicating that they had not seen a rent increase in the past 12 months, while only 8% said their last rent increase was within the last six months.

“This research shows some interesting trends and indicates that a great majority of landlords are working hard to keep rent costs down, rather than simply passing additional financial burdens on to their tenants.

“Of course it remains to be seen whether this continues in the longer term in the context of increasing inflation and the further reduction of mortgage interest tax relief, and it may be that in the future landlords will have little recourse but to consider future rent rises.”

Figures show stamp duty is not working as intended

Landlords have been put off increasing their portfolios and first-time buyer levels are in decline, suggesting that the core stimulus for the stamp duty levy, to encourage new home owners, is not working.

Those are the key conclusions drawn from a survey of over 3,000 landlords, conducted by Residential Landlord Associations’ (RLA) Private Renting Evidence, Analysis and Research Lab – PEARL.

No less than 68% of landlords had been dissuaded from investing in more properties since the Government introduced its 3% stamp duty charge on second homes, in April 2016.

Whilst this part of former Chancellor George Osborne’s plan appears to have been successful, statistics from UK Finance suggest that the tax’s primary intention, to support first time buyers into home ownership, is failing.

The data showed that the number of mortgages provided to first-time buyers fell by 10% between August and September this year, while in the year to September 2017, the market saw a 1% fall in this demographic.

This trend was further backed up by a separate survey from the Royal Institution for Chartered Surveyors, which showed a further 20% of respondents to its latest survey reported a fall in new buyer enquiries in October.

RLA policy director David Smith said:

“The previous Chancellor introduced the stamp duty levy to support first-time buyers, yet the figures show this simply is not happening.

“Many of those looking for a place to live are facing a perfect storm – good landlords not prepared to invest in new homes to rent, whilst those same people are unable to access home ownership sectors. It is clear that the stamp duty levy is hurting but not working for anyone. It is time to scrap it.”

No nasty shocks for landlords in the Autumn Budget

Chancellor Philip Hammond delivered his Autumn Budget with housing high on the agenda and the abolition of stamp duty to £300,000 for first-time buyers, a big highlight.

The details of the Budget, overall, delivered encouraging news for landlords with no further financial changes to buy-to-let.

The Government is set to make further investment in its Universal Credit system, which in theory should help to ensure that fewer claimants fall behind with their rent.

Hammond stated: “First, we will remove the seven day waiting period applied at the beginning of a benefit claim so that entitlement to Universal Credit will start on the day of the claim.

“We have looked at reducing the delay at the end of the first month assessment period. But to do so would mean compromising the principle of payments being made on the same day of the month. A key feature of the system, which is very important for claimants in managing their budgets.

“So to provide greater support during the waiting period we will change the advances system to ensure that any household that needs it can access a full month’s payment within five days of applying.

“We will make it possible to apply for an advance online.“And we will extend the repayment period for advances from 6 months to 12 months.

“Any new Universal Credit claimant in receipt of Housing Benefit will continue to receive it for two weeks.”

Increases in the income tax thresholds will see the personal allowance raised to £11,850 from £11,501, while the higher rate tax band will be £46,350, up from £45,001.

In announcing a consultation process on longer-term tenancy agreements and potential incentives for landlords offering them, Hammond was acknowledging the important role that the private rental sector will continue to play in the long-term solution to the housing crisis.

Hammond also revealed substantial funding to bolster transport infrastructure in the Midlands and North of England.

Further significant investment will be made in building up to 300,000 new homes per year by the mid-2020s – and the Government has pledged to also fund the training needed to deliver sufficient workforce to meet these targets within the construction industry.

The Budget revealed that five new garden cities are to be constructed by 2050 via Public Private Partnership, while Oxfordshire will have a new 100,000 homes built by 2031.

To help address the current lack of housing, Hammond announced that local authorities will be given new powers enabling them to charge 100% council tax premiums on vacant properties, with the aim of encouraging owners to rent these properties out, or sell them.

HMRC acknowledges stamp duty cut could see house prices rise

HMRC has publicly acknowledged that the Government’s move to cut stamp duty for first-time buyers, is likely to result in house price rises.

In his Autumn Budget, the Chancellor announced that first time buyers paying £300,000, or less, on a residential property will no longer have to pay Stamp Duty Land Tax (SDLT). Those paying up to £500,000 will receive this saving on the first £300,000, and pay 5% tax on anything over this sum – a measure put in place to account for the higher housing costs in key urban areas such as the capital.

The move was aimed at making property more affordable for those looking to climb onto the property ladder for the first time, creating movement within the housing market.

However, with demand likely to rise as a result of the Chancellor’s move, and supply continuing to lag behind, HMRC have said that they expect the result to be property prices rising in England and Wales (Scotland is not affected). Although, in Wales, this new ruling will only apply until April 1st 2018, when Wales will be responsible for its own property tax management:

“Paying no SDLT reduces the upfront cost of buying a home for first time buyers. This measure is expected to lead to a small increase in house prices in the first year after implementation,” HMRC admitted.

Furthermore, they clarified that the new SDLT rules may not apply to a buying couple, where one has previously owned a home.

“A first time buyer is defined as an individual or individuals who have never owned an interest in a residential property in the United Kingdom or anywhere else in the world and who intends to occupy the property as their main residence,” HMRC stated.

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.